Many corporations are flush with cash that they don't have immediate needs for, and this money is sitting around earning almost nothing since interest rates are so low. The Federal Reserve is planning to keep rates near zero for what will probably be at least a couple of years. Some companies are using the cash to buy back their own shares, but quite a few are deciding to make takeover bids and buy out competitors or other companies that have products or services with growth potential.
As long as the company is profitable, almost any buyout would likely be accretive to earnings for the company acquiring it. We just recently saw new buyout deals announced this week, and more are likely to come before the year closes. Almost all of these stocks are trading well below their respective 52-week highs, and the lower valuations make them more interesting as buyout targets. Here are some companies with takeover potential:
EOG Resources (EOG) is a leading natural gas and crude oil company. EOG has interests in the United States, Canada, the Republic of Trinidad, Tobago, the United Kingdom, and China. EOG Resources also has a joint venture agreement to develop fields located in the Eagle Ford shale region. This stock has bounced sharply off the recent lows, so I would wait for dips. Fortune magazine discusses the idea that this company has a very low cost of production on a per-barrel basis, and that it could be a takeover target.
Here are some key points for EOG:
- Current share price: $92.21
- The 52-week range is $66.81 to $121.44
- Earnings estimates for 2011: $3.44 per share
- Earnings estimates for 2012: $4.93 per share
- Annual dividend: 64 cents per share, which yields .7%
Marathon Oil Corporation (MRO) is a leading oil exploration and production company. The price to earnings ratio is only about 7, and the dividend is nearly 2.5%. Plus, this stock is trading just above book value, which is $23.40. This stock was trading around $31 per share just a few weeks ago, then it fell to about $23 and has started to rebound. Analysts and investors have speculated that a large oil company might make a bid for Marathon, and the fact that this stock is trading for nearly 50% off the 52-week high makes it much more attractive for an acquiring company.
Here are some key points for MRO:
- Current share price: $27.89
- The 52-week range is $19.13 to $54.33.
- Earnings estimates for 2011: $3.55 per share
- Earnings estimates for 2012: $3.67 per share
- Annual dividend: 60 cents per share, which yields 2.3%
Charles & Colvard Ltd. (CTHR) is the maker of Moissanite jewelry. This company has recently launched a new website to market jewelry directly to consumers. Insiders own a large percentage of the company and have been buying the stock recently, which appears to indicate that the shares are undervalued. The book value is about $2.50 per share, and the company has a strong balance sheet. Because this company is the exclusive maker of Moissanite, it could be an attractive takeover target for a major jewelry company or a company like HSN Inc. (HSNI), especially since the Charles & Colvard currently sells Moissanite jewelry products on televised home shopping network programs.
Here are some key points for CTHR:
- Current share price: $2.05
- The 52-week range is $1.58 to $3.99
- Earnings estimates for 2011: n/a on Yahoo Finance
- Earnings estimates for 2012: n/a on Yahoo Finance
- Annual dividend: none
Accorda Therapeutics (ACOR) is a biotechnology company with a treatment called Ampyra for multiple sclerosis. There are a number of larger biotech and pharmaceutical companies that are actively pursuing drugs for MS, due to the huge potential market. A number of investors and analysts believe Accorda could be poised for a buyout.
Here are some key points for ACOR:
- Current share price: $23.26
- The 52-week range is $18.36 to $33.48
- Earnings estimates for 2011: 85 cents per share
- Earnings estimates for 2012: 76 cents per share
- Annual dividend: none
Range Resources (RRC) is a natural gas company with interests and projects in the Appalachian and Southwestern parts of the United States. This stock is trading close to the 52-week high and has risen sharply from recent lows, so I would wait for pullbacks. However, many investors believe that Range Resources could be an attractive buyout candidate, especially after BHP Billiton (BHP) bought Petrohawk (HK) earlier this year.
Here are some key points for RRC:
- Current share price: $71.15
- The 52-week range is $35.11 to $77.24
- Earnings estimates for 2011: 99 cents per share
- Earnings estimates for 2012: $1.41 per share
- Annual dividend: 16 cents per share, which yields .2%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I am long CPRX.